Britain's Lloyds Banking Group said it was in talks over scaling back or cancelling its participation in a state-backed scheme to insure it against credit losses.
Lloyds is discussing a reduction in the number of toxic assets it might place in the so-called asset protection scheme (APS), encouraged by "improving economic conditions," the part-nationalised lender said in a brief statement today.
The bank said it was also in talks with the government and the financial regulator over "possible alternatives" to entering the scheme, without providing further detail.
"All possibilities remain open," Lloyds said.
Lloyds shares were down 1.5 pe rcent at 108 pence in early morning trading, while the FTSE 100 share index was flat.
Regulators have insisted that any move by Lloyds to reduce or cancel its participation in the APS be accompanied by a capital-raising to provide a buffer against further losses on risky debt-backed assets.
Analysts estimate it would have to raise up to £20 billion pounds, representing one of the biggest capital-raisings on record, if it were to quit the APS.
Reuters reported yesterday that the Financial Services Authority had set tougher-than-expected capital conditions on Lloyds' potential exit from the scheme, making an outright departure less likely.
Lloyds was reported last month to be considering a rights issue of up to £15 billion, but two of the bank's biggest shareholders told Reuters there was little enthusiasm for a cash call.
Under an outline deal unveiled in March, Lloyds is to hand £15.6 billion in shares to the government in return for taxpayer-funded insurance against losses on £260 billion of risky debt-backed assets, but final details of the programme have not been agreed.
The bank, 43 per cent owned by the state, is now anxious to scale back its reliance on state, amid concerns that European regulators may force it to sell some units in response to competition concerns.
Lloyds has also said that its loan book is performing better than had been expected when the original APS terms were negotiated, estimating last month that bad debts had peaked during the first half of the year.
Reuters